Analysts at Canaccord Genuity (TSX:CF, LSE:CF) Group Inc raised their price target on Draftkings Inc (NASDAQ:DKNG) shares to $30 from $28, citing strong operational execution which had anchored fourth quarter results and a promising outlook.
The pandemic-era meme stock currently trades around $19.92 on the tech-dominated Nasdaq.
In a note to clients, Canaccord maintained its “Buy” rating on the digital sports entertainment and gaming company.
READ: DraftKings shares pop on 4Q revenue beat and improved 2023 guidance
For the three months ended December 31, 2022, the Boston-headquartered sport-gambling portal reported revenue of $855 million, up 81% from revenue of $473 million in the 4Q of 2021, and ahead of the Street’s expectation of $801 million.
“DraftKings reported strong Q4 results, with revenue and profitability both coming in well ahead of consensus as ongoing product improvements, favorable outcomes, heightened customer retention, and cost discipline all contributed to the outperformance,” said Canaccord’s analysts.
“The company is seeing states reach positive contribution profit faster than originally anticipated, with the natural reduction of promotional and marketing spending in these states as they mature complemented by growing handle per customer…as new bet types are introduced.”
DraftKings said it was raising its fiscal year 2023 revenue guidance to a range of $2.85 billion to $3.05 billion, from a range of $2.8 billion to $3 billion, equal to year-over-year growth of 27% to 36%.
The company has also improved its fiscal year 2023 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance to a loss of between $350 million and $450 million, compared to its prior guidance of a loss of between $475 million and $575 million.
“The company anticipates generating over $100 million of adjusted EBITDA in 4Q 2023 and plans to exit the year with more than $700 million of cash on its balance sheet, reiterating that it has no need for additional capital and expects to be EBITDA profitable in FY24,” said the analysts.
“We are encouraged by DraftKings’ ability to deliver cost savings and operational efficiency without sacrificing top-line growth, and we continue to find the current valuation reasonable given recent operational execution and the ongoing expansion of the US online gambling market.”
DraftKings revenue in the quarter was driven by customer retention and monetization in existing states, the successful launches of its Sportsbook and iGaming products in additional jurisdictions, and structural sportsbook hold improvement.
“We are raising our price target to $30 (from $28), which is based on approximately 4x our FY24 revenue estimate and is supported by discounted cash flow (DCF) valuation,” concluded the analysts.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
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